Vacant Milwaukee school sold in ‘ridiculous’ deal to remain closed

MADISON, Wis. — The long vacant Malcolm X Academy in Milwaukee, part of a heavily criticized real estate development, will remain shuttered for all of 2014 and possibly 2015, Wisconsin Reporter has learned.

As officials for Milwaukee Public Schools and the developer, 2760 Holdings LLC, hammer out the final terms of the sale, the school district is set to make lease payments beginning April 1 on the school building to the developer.

Details emerge in Malcolm X Academy sale.

The deal that one state lawmaker previously said “stinks to high heaven,” “is typical of that process,” according to assistant city attorney Thomas Gartner. “It could take a couple years for a developer to proceed with a project like that.”

Gartner said there was no time frame for sides to finalize the sale. The deal hinges on Holdings 2760’s ability to win taxpayer-backed financing, a combination of low income housing tax creditsfrom the state and redevelopment authority bonds from the city.

The developer has failed to meet a deadline for seeking low income housing tax credits as required in the term sheet approved by the Milwaukee Common Council. A 30-day deadline to complete an “offer to purchase” and 60-day deadline after that to close, laid out in the term sheet, have long passed.

The term sheet, however, isn’t a legally binding document.

“The train is leaving the station on this one. Is the deal even in existence?” said CJ Szafir, educational director for the public interest law firm Wisconsin Institute for Law and Liberty. “Why haven’t they filed for tax credits that were deemed essential for the redevelopment?”

Dennis Klein and James Phelps, the principals in 2760 Holdings, couldn’t be reached for comment.

“It is in the best interest of MPS and taxpayers to coordinate the closing on the real estate, closing on financing and the approval of the final lease concurrently,” wrote MPS spokesman Tony Tagliavia in a statement to Wisconsin Reporter. “Because negotiations are still underway, we would not be able to provide anything beyond our comments here, but any timeline changes would come back to the Board once negotiations are completed. As for tax credits, we cannot speak for the developer.”

Henry Tyson, superintendent of St. Marcus Lutheran Academy, the gold standard in Milwaukee’s school choice program, last year offered more than $1 million cash for the Malcolm X building. Tyson’s proposal for a school to teach 900 students beginning this fall would have been completed with $5 to $8 million in private renovations.

MPS refused Tyson’s offer and with its blessing the Milwaukee Common Council instead agreed to terms with 2760 Holdings.

“We buy for $2.1MM get a lease for total payments of $4.2MM and agree to put $2.1MM into improving the building,” Klein’s e-mail read. “We net zero….We get $4.2MM we give back $4.2MM. Only exception is we get the small piece on 1st Street to use for a (Low Income Housing Tax Credit) property.”

MPS would also pay for maintenance of the building during the lease period, according to the term sheet. At the end of the lease, MPS has the option to repurchase the educational portion of the building for $1. The other half of the building will be renovated for housing and community use.

The emails obtained by WILL show MPS officials may have been misleading about the finances of agreement and the speed with which the building could be renovated and used.

“I think you are overstating your position,” wrote Dennis Klein, chairman of KBS construction, in an email to MPS officials. “In the short term, the building cannot be used.”

In another email he wrote, “The term ‘break even’ is misleading. MPS is paying more rent than I am spending on the building.”

At the time, school officials and city aldermen took criticism from school choice supporters and conservatives for not allowing bids on the project.

In an email to MPS board member Larry Miller dated Nov. 4, alderman Bob Bauman, who voted for the deal, wrote that he had problems with the chosen developer and would have preferred an request-for-proposal process to solicit multiple bids on the project.

Bauman told Wisconsin Reporter on Thursday that he’d be “shocked to know” that title to the property hasn’t changed hands.

“They better conform to the term sheet,” Bauman said. “We approved an agreement in principle.”

Officials pushing for the agreement repeatedly stressed urgency and said “time was of the essence” to get a deal done, which precluded them from the normal process of accepting bids from multiple developers.

“The urgency we face is due to a number of deadlines including applications for tax credits,” Miller replied. “But clouding the process is the pressure from the State legislature concerning MPS facilities.”

Their urgency may also have been fueled by a bill passed this month by the Assembly compelling MPS to make vacant buildings available for purchase to choice and charter schools. It is uncertain whether the Senate will take up the bill before the session expires. Senate Republicans will discuss the bill next week.